Today’s guest post is from Gary Kalman and Annalise Burkhart, who are, respectively, Executive Director and Program & Research Associate for Transparency International U.S.

Readers of this blog know well that anonymously owned companies are the go-to vehicle for laundering illicit funds. From the revelations of hidden assets exposed in the Panama Papers to the search for sanctioned assets of Russian oligarchs, anonymous corporate structures enable corrupt and criminal actors to steal, hide, launder and benefit from illicit proceeds with impunity. The anticorruption community therefore cheered when the U.S. Congress passed the Corporate Transparency Act (CTA), requiring the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to collect beneficial ownership information for U.S. companies and align with international standards.

As the Treasury Department is finalizing its rules for implementing the CTA, the law’s opponents have been engaged in a campaign of scaremongering aimed particularly at small businesses, with various memos, articles, and notices warning of a burdensome reporting process, uncertain or unclear disclosure requirements, and the risks of hefty fines and possible jail time for business owners who might inadvertently fail to file the appropriate information.

These claims are exaggerated, inaccurate, and misleading. Instead of providing helpful guidance to small businesses, these alarmists are stoking fear among business owners, likely to mobilize political opposition to the effective implementation of the CTA. Here are the facts:

• The scaremongers make it sound like compliance with the CTA’s reporting requirements will be complicated and confusing, making it too easy for a small business to inadvertently violate the law, and expensive to ensure proper compliance. This is false. For the vast majority of small U.S. businesses, compliance with the law is simple. Business owners will only need to provide their full legal name, date of birth, address, and a unique identifier such as a driver’s license or passport number – all readily known or easily available information. FinCEN estimates that 59% of covered entities will have one owner who is also the applicant (the person filing the form). Another 36% will have fewer than four owners. For these small businesses, there is no confusion about who owns and controls the entities. The bottom line is that “mom-and-pop” businesses won’t have a problem naming their owners – it’s mom and pop. (This simplicity also means that claims of high compliance costs are unfounded. In the United Kingdom, when a comparable law went into effect, the median cost for a small business to initially file information was roughly $137, and only $2.44 annually in the years following to check and update the information.) The Treasury Department has already released clear guidance on what needs to be reported, and existing businesses will have a full year to file readily available pieces of information. For most, the form should take only a few minutes to complete.
• True, for companies with more complex ownership structures, identifying the beneficial owners, and therefore complying with the CTA’s reporting requirements, can be more complicated. But for legitimate businesses with more complex corporate structures, the owners likely hired lawyers or other corporate service providers to create the structure. For honest entities, these same owners and service providers should be able to name who they put at the top of the corporate chain. The CTA does not prohibit the creation of complex ownership structures, including the use of shell companies and offshore entities. Rather, the law properly requires companies that create such structures to disclose their owners, and, for an honest company, is less resource intensive than creating the complex structures in the first place. In the decade-long public debate over the legislation, nobody ever offered a single real-world example of a legitimate enterprise that, on the one hand, had the resources to build a complex corporate chain that would make ownership reporting complex, but on the other hand, too small or poor to name the beneficial owners. The scare tactics we are seeing often conflate small businesses with simple structures and those that purposefully choose to obfuscate ownership.
• The claims that small business owners risk hefty fines or even jail time for negligent failures to properly disclose the required information is, at best, grossly misleading. Yes, the CTA does authorize stringent penalties for noncompliance, but those harsh penalties, such as jail time, are reserved for those who willfully do not comply. In law, “willful” is a higher standard than “negligent” or even “knowing,” It implies a knowledge of wrongdoing. It is simply not true that a small business owner who simply fails to file the required information could go to jail, even if the failure was negligent.
• Some of the alarmist warnings assert that the CTA requires “public disclosure” of company ownership. This is not true. There is, to be sure, and ongoing debate about whether beneficial ownership information should be made available in a publically accessible database. But the CTA requires no such thing. Under the law, the ownership database is only open to law enforcement and financial institutions with anti-money laundering obligations for customer identification and due diligence purposes. Penalties for anyone who leaks CTA data to the public are stiffer than for those who do not file.

In short, contrary to the inflammatory rhetoric from certain CTA opponents, honest businesses have nothing to fear—much to gain—from full and vigorous implementation of the CTA. The only people who should be concerned about these reporting requirements are the corrupt officials and criminal actors—and the professionals who have previously turned a blind eye to help them launder their money.